Housing, Havens and Hash

Not very long ago, the only cranes visible in Eugene were sandhill cranes in Delta Ponds heading south each autumn. But these days, Eugene hosts a bevy of taller cranes. Construction cranes loom above student housing projects, but will our economic ecosystem be able to support such a sudden surge?

More than a thousand new bedrooms are coming quickly available. That’s a lot of mouths to feed. Will they be filled this fall? The short answer is yes, if things stay the same. But things never stay the same, so here are three follow-up questions.

1. Will the Federal Reserve continue its policy of maintaining very low interest rates?

2. Will the University of Oregon’s national football brand continue to grow?

3. Will Oregon voters reject the legalization of marijuana for recreational use?

If the answer to all three questions is yes, then the current building boom will have reason to continue. If not, things will get more complicated.

Low interest rates have sent the investor class scurrying for safe but lucrative havens for their money. Investors who don’t want to send their money overseas have very few options to garner interest rates that approach 10 percent.

Large developers can show investors such impressive returns with university student housing projects. Their investment brochures can refer to a recession-proof revenue stream: federally administered student loans.

Alabama-based Capstone and Chicago-based Core Campus scour the country for college towns where student populations have been surging. Investors are attracted to Eugene, a town they have suddenly heard of. Thank you, ESPN.

Investors always look for assurances, and familiarity often fills that need. If you’re buying your first car, it helps that you’ve seen television ads of beautiful people being happy with that car. It’s less frightening if it feels familiar.

People investing millions in construction companies are no different. “Eugene, Oregon? Oh, I’ve heard of that place. Could you believe those neon-colored socks? I thought those colors would ruin our new television. Sure, put my money there.”

These buildings will fill up in the fall because they are new and they offer all the latest amenities. But those students will be moving out of other bedrooms around town, creating other vacancies. Older buildings will have a harder time attracting renters.

As renters have more choices, standards increase. Some landlords won’t meet those standards. They will put their buildings to other uses, or they will sell their properties.

Economists have a charming term for this cascading causality: creative destruction — “destruction” because the status quo crumbles, “creative” because something new takes its place. Once a four bedroom house a few blocks from the university no longer fetches $2,000 a month with no work from the owner, the unsolicited offer to buy the property for half a million dollars begins to look more attractive.

This is where the third question comes into play. Eugene’s ESPN-fueled reputation is contributing to this economic upswing, but an older reputation may counterbalance that momentum.

Two days ago I passed a young man with a dog, sitting in Kesey Square with a cardboard sign. “Why lie? Need money for weed.” I’m guessing the pitch works for him. In how many towns will that placard attract the same sort of response?

Denver, Boulder, Seattle, and Portland are not cities known for affordable rents and a low cost of living. If Oregon voters legalize marijuana in November, will Eugene attract a new group of people looking for a minimal living alternative?

Some of the most industrious people I know enjoy an occasional mind-altering inhalation. Legalizing drugs will always be a mixed (dime) bag. I have dozens of Frog’s joke books, but I’m not sure the venerable street peddler would rise to folk-hero status in other towns that may legalize marijuana for recreational use.

Will unscrupulous landlords defy the housing boom’s creative destruction by recruiting a new and lower class of renters, promising free Doritos and grow light fixtures with every annual lease?

Eugene has two new greens in its possible future: economic prosperity and pointy-leafed recreation. They may collide.

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Don Kahle (fridays@dksez.com) writes a column each Friday for The Register-Guard and blogs